COMPENSATION POLICY IN STARTUPS

A Work Project presented as a part of the requirements for the Award of an International

Master’s Degree in Management from the NOVA – School of Business and Economics.

COMPENSATION POLICY IN STARTUPS “KENDA BIKES” FIRST STRIKES TOWARDS A COMPETITIVE

COMPENSATION STRATEGY

PHILIP NODORP

MASTER STUDENT 40678

A Project carried out on the International Master’s in Management Program, under the

supervision of:

Alexandre Dias da Cunha

4th of January 2020

Compensation Policy in Startups | „KENDA Bikes“ first Strikes towards a competitive Compensation Strategy

Work Project | Nova School of Business and Economics 1

COMPENSATION POLICY IN STARTUPS “KENDA BIKES” FIRST STRIKES TOWARDS A COMPETITIVE

COMPENSATION STRATEGY

Abstract

KENDA Bikes1 is a young, dynamic, and strong brand growing rapidly fueled by a pandemic

and a connected e-bike hype. As the company is still very young, the startup lacks the right

processes and structures in human resource management, especially in compensation policy,

to cope with the constant growth in the future. Hence, the Case Study offers a teaching

opportunity to analyze factors of "attracting, retaining, and motivating talent", "what a reward

strategy is", "how to determine a pay structure", and "what change management tool cloud be

used to implement a reward strategy".

Keywords

Growth, Compensation Policy, E-Bikes, Startup, Reward Strategy, Change Management

This work used infrastructure and resources funded by Fundação para a Ciência e a Tecnologia (UID/ECO/00124/2013, UID/ECO/00124/2019 and Social Sciences DataLab, Project 22209), POR Lisboa (LISBOA-01-0145-FEDER-007722 and Social Sciences DataLab, Project 22209) and POR Norte (Social Sciences DataLab, Project 22209).

1 All actions and problems shown in the case study are based on a real enterprise in the cycling industry. The name „KENDA Bikes, all names of the protagonists and mentioned locations have been disguised for confidentiality reasons. Any resemblance to actual events or persons, living or dead, is purely coincidental.



Table of Contents

01 INTRODUCTION ................................................................................................................. 3

02 UNDERSTANDING THE PEDELECS MARKET ............................................................. 3

DEVELOPMENT OF THE EUROPEAN MARKET IN THE LAST FIVE YEARS .......... 4

COMPETITION AND THE ATTACHED CHALLENGES................................................. 5

03 “KENDA BIKES” BACKGROUND.................................................................................... 6

CURRENT HRM STRUCTURE ........................................................................................... 6

LOOKING AHEAD - FUTURE EMLPOYEE REMUNERATION .................................... 8

04 CASE SYNOPSIS ............................................................................................................... 10

OBJECTIVES .................................................................................................................. 10

05 ANALYSIS ......................................................................................................................... 11

1. What are challenges for start-ups when attracting and retaining talent? ............................................ 11

2. What is the „Total Reward Strategy“ and why is it crucial for companies such as „KENDA Bikes“? 17

3. List and define steps with which “KENDA Bikes” can design a sufficient pay structure? ................. 20

4. Define two different change management tools shortly and describe how “KENDA Bikes” can use one

of them in order to implement a sufficient reward strategy. .................................................................. 23

BIBLIOGRAPHY .................................................................................................................... 26



01 INTRODUCTION It is October 6, 2020, and the "management team" of the company KENDA Electric GmbH2, a

young and ambitious pedelec3 manufacturer from the city of Münster, is sitting together over

dinner. Like most meetings of the company, this one takes place in a relaxed atmosphere.

Private matters are discussed, there is good food, drinks, and extensive laughter until the more

serious topic is addressed. The scheduled management meeting's actual reason is one of the

most important and often, most underestimated issues for companies, especially young

companies. The management team came together to discuss the current compensation policy

and how it needs to change in the future to remain relevant to the well-educated and talented

members of the team and potential new hires. Two days from now the founder of KENDA

Bikes has a shareholders meeting where he has to present the results of the first year, has to

justify his recruitments, and probably has to discuss how the compensation package of the

management team as well as new recruitments can look like in the future (Appendix A.1).

02 UNDERSTANDING THE PEDELECS MARKET The bicycle industry has experienced an unprecedented boom in recent months and has

benefited from "COVID-19", in contrast to most other sectors in the world. The bicycle industry

has already shown strong growth in recent years. One reason is undoubtedly the stride of

technologically advanced e-bikes. Nevertheless, it must be mentioned that e-bikes and

conventional bicycles are equally in vogue, and both have seen a considerable increase. The

mentioned pandemic, the sustainability awareness of people in the 21st century, the car

industry's turnaround, and collective goals like car-free inner cities are more than beneficial for

the bicycle industry and some of the reasons for the mentioned boom. In the 1970s, the textile

and bicycle industry left Germany and the rest of Europe and moved towards Taiwan. The

2 The abbreviation GmbH stands for Gesellschaft mit beschränkter Haftung, which in English means a ‘limited liability company’ or ‘company with limited liability’. 3 The abbreviation for "Pedal Electric Cycle" - in which the driver has to pedal by himself. Thus, the e-bike in use today is an electric bicycle that assists in pedaling up to a speed of 25 km/h



cheap yet high-quality labor force was the most severe reason. Over the decades, the bicycle

industry in Taiwan has developed further, and thus some European know-how has migrated to

Asia. Due to the rising standard of living in Taiwan and the oversupply of engineers, and the

related low wages in China, the production sites have changed. The new production sites in

China, Vietnam, Cambodia, and Thailand have created new opportunities. Some of them are

protected by the EU's anti-dumping duties, but now also smaller players with less capital can

access incredible know-how. Manufacturers offer more or less an all-in-one service and provide

everything from technical drawings, prototypes, sourcing, assembling, and sea transport for

their customers and all this for an "affordable" price.

DEVELOPMENT OF THE EUROPEAN MARKET IN THE LAST FIVE YEARS

For the German bicycle market, 2015 was the best year ever recorded. Suppose one cumulates

e-bikes and conventional bicycles, 4.34 million new bikes were sold in Germany in 2015. Until

2017 the cumulated sales figures have decreased, but the share of e-bikes has slightly increased.

Since then, sales figures have been growing again, reaching 4.31 million units in 2019, of which

1.16 million were e-bikes (Wagner, 2020; Appendix B.1). According to the German Two-

Wheeler Industry Association, import has increased by 7.4%, export by 14.2% and sales by

3.1% (Bundesministerium für Wirtschaft und Energie, 2020). The penchant for high-quality

products and the significantly more expensive products from the e-bike segment have resulted

in the industry achieving a 34 percent increase in 2019 compared to the previous year (Wrede,

2020). If one looks at the e-bike market in Europe, one can see substantial growth over the last

ten years. In 2019, 3.6 million bicycles were sold in Europe, of which 1.36 million came from

the German market (Statista Research Department, 2020; Appendix B.2). It will be exciting to

see how strong the boom in 2020 was. Still, it is already predicted that the global market for

electric bicycles will increase by 5.2 billion U.S. dollars from 2019 to 2023, from 14.8 billion



to 20 billion (Wagner, 2020). According to the co-founder of FAZUA GmbH 4, the American

market, in particular, will play a significant role in the coming years, as experience shows that

it is five years behind the European market (Fabian Reuter, 2020).

COMPETITION AND THE ATTACHED CHALLENGES

As already mentioned, the bicycle market is growing at an incredible pace. Established giants

in the industry have had good times in the last three years and are now flooding the Asian parts

market with inquiries. Even small niche suppliers appear in the brand landscape and try to stand

out from the crowd with an exceptional product and small quantities. Due to the technological

development of e-bikes, large players from other industries are also coming to the market and

pumping large amounts of money into the industry. Names like BMW, Ducati, Jeep, and Harley

Davidson all take part in the competition. Not all attempts to jump on the bandwagon are taken

seriously, but it shows the potential and, at the same time, the enormous pressure for small

competitors.

Last but not least, there are the pioneers of the e-bike industry. The "early movers" Vanmoof

and Cowboy are on everyone's lips, and both have the most futuristic bikes on the market. With

large financing rounds, both attract VCs, PEs, and other investors from all over Europe and

have already raised around 50 million Euros each. These well-financed enterprises give small

players in the market problems with purchase quantities and component procurement. In

addition, these companies also have better opportunities to attract and retain talent over time to

create real value. Companies that use most of their equity and debt to pre-finance new lines for

the next season are even more critical to provide an excellent overall package for their

employees.

4 Fazua was founded in 2013 in Munich, Germany, by a small team of Bavarian cycling enthusiasts. Since then, the company has relentlessly pursued its goal of revolutionizing the eBike market. FAZUA has developed an innovative eBike drive system to push the limits of cycling mobility while also preserving the natural feel of a non-motorized bike.



03 “KENDA BIKES” BACKGROUND A lot has happened so far, and the company has achieved more than it could have wished for at

the foundation. The founder Alexander Walter was able to put together a team of shareholders

before the foundation of the GmbH. They have extensive knowledge of founding a company

and a vast network in the German start-up landscape. Over many months Mr. Walter has

mastered all operative tasks independently and has relied on freelancers for complex problems

that required unique expertise. In January 2020, five months after the product launch, the

founder created the first position for a permanent employee and hired a marketing manager

(Appendix A.1). On July 29, 2020, KENDA Electric GmbH and especially the founder, Mr.

Walter, had a lot to celebrate. The company's product launch took place exactly one year ago

and the twelve months after that could hardly have been better than what the company has to

show. During the festivities, Mr. Walter gave a speech about his inspiration to bring such a

product to the market and the initial steps and difficulties on the way to its establishment. "The

daily commute from my apartment to the location of my internship at KPMG changed my

perceptive about E-Mobility and E-Bikes, especially." Mr. Walter remembers while he was

talking about his inspirations at the Event. The train of thought was quite simple. He liked his

father's e-bike, which he rode to his internship every day, but such a bike was not affordable

for a young person, too heavy, and just not cool enough to be seen on campus. A few months

later, and countless nights in the garage together with his father, Mr. Walter launched an

affordable, light, and puristic but stylish pedelec. Such a success story fueled by a global

pandemic that not only contributed to this journey but elevated the bike market on an

unprecedented level entails new challenges for a young and still small start-up.

CURRENT HRM STRUCTURE

In recent months, not one, two, or three permanent employees joined the team, but four

permanent employees and various interns. Three of the four new employees are part of the



management team, and one person is responsible for customer support. The framework

conditions and compensation package that were negotiated at the first hiring process should

also apply to future employees. At that time, the idea was to limit these contracts at the

beginning to one year to not leave the still very young company with obligations that might not

be bearable in the future. In terms of recruiting, KENDA's strategy is to convince highly

qualified master graduates of the advantages of an early-stage start-up. Two of the five

permanent employees have been hired by the founder through his extended circle of

acquaintances, one permanent employee through a previous internship, and the remaining two

through the traditional recruiting channel. So far, this has worked very well, and the company

has been able to acquire talents who could earn significantly more money on the open market.

However, how does the remuneration concept of the GmbH look like? Incentives are provided

mainly by potential opportunities in the near future, such as promotions, possible equity, or

partnerships in affiliated start-ups. Besides, the possibilities of learning leadership skills at an

early age are also taken into account. In monetary terms, the company offers little. Its base

salary is below the industry average and far below the wages that employees could earn

elsewhere. All employees are also provided with a company bicycle and can take advantage of

the usual start-up benefits such as free coffee, free drinks, and free cereals. A kind of variable

compensation has not yet been introduced. Still, KENDA Electric GmbH has recently entered

into a partnership with a sports provider so that employees can take advantage of a wide range

of sports activities for 20 euros per month. On top of that, job-related training is also possible.

Budgets are provided for skill training and personal development, but this will only happen

when its revenue allows it. The climate is amicable and team-oriented, yet the team feels the

challenge and pressure of start-up success that drives the whole organization. The team is very

committed and willing to put all their energy into achieving the business objectives while

believing in its leadership, which could be a significant attraction for many potential recruits.



KENDA Electric GmbH is still at the beginning of a hopefully very long and successful journey

and has not yet reached a stage where a reward strategy could be implemented as the structure

for this was not in place. The founder intends to develop a competitive reward strategy for

KENDA Bikes to show his team an appropriate appreciation.

LOOKING AHEAD - FUTURE EMLPOYEE REMUNERATION

Here they are, the CEO Alex, the marketing department Veronica and Reily, the business

development and operations section represented by Janis, and the supply chain management

represented by Pete sitting together over a well-deserved dinner, drinking beer, and having a

good laugh. After a bit of time has passed, the founder took the floor: "As you know, you all

have a temporary contract for 12 months, and I am very grateful for the last weeks and months

we have worked together. As the first contract of our beloved Head of Marketing will expire in

the next few weeks, we have to look into the future and see how we can continue from there. I

had told you when signing the contract that the next contract will be longer and better paid.

Whether this will be the case, I cannot say for sure. That's why I would like to hear your

opinions, if you could live another year with the same compensation or if you have other ideas.

Please keep in mind that I do not have absolute authority here. If it were up to me, you would

all earn more, but I am still very cautious at the moment, and so are our

shareholders." Veronica and Reily immediately jumped in and made it clear that they

appreciate the benefits of this start-up but would not work another year below the industry

average and would be more likely to aim for a salary just above the average due to the high

level of responsibility. On the other hand, Janis and Pete would accept another year with the

same pay, but they doubt that it makes sense. Janis paraphrased it with the following

words: "Alex, you know my point of view. Money is not the decisive factor why I work for this

company. Still, we are already having problems getting enough applications together.

Attraction, long term retention, and keeping everyone equally motivated is tough with the



current compensation package". Pete agreed and continued that even hiring interns becomes

more difficult due to the given wage structures. With the sales targets set and the accompanying

growth targets, the salary structures should be reconsidered and worked out newly. If the people

present are part of the management team, everyone who follows will be subordinate and earn

less. However, with current fixed pay, this is not reasonable. "I am aware that we rely on every

employee and that every employee is a part of the company's success, but we should start

building a salary structure with different job grades and salary ranges soon to avoid running

into major problems," Pete added. Veronica replied that she sees it similar and said: "I see this

similar to Pete. I think the atmosphere, the team, and my tasks are great, but I think that we

earn far too little in the long run and in relation to our education. I think it's great that you try

to organize several things for us, like the new sports program, and that's exactly why I wanted

to emphasize again that Reily and I are not just about money. It is an important component, but

we can focus our attention on many other things if we don't make a 100 percent agreement on

the salary. We have enough examples of start-ups and cooperation partners that try to offer

their employees a complete package. I know we are still small, but maybe we should think along

these lines. We cannot implement this immediately, but it would be worth considering, wouldn't

it? "—everyone, including Alex, nodded. "I think Veronica has mentioned a valid point which

we should consider. Even though we are talking about money all the time, it is still a small part

of many that could make us feel appreciated and attract potential applicants," said Janis. After

a few moments of silence, the founder took a sip of his lemonade, stared in the middle of the

table, and retook the floor. "I hear you loud and clear. And I can understand all points of view.

But let me give you one more thing to think about first or to elaborate on together. Even though

we don't know how to solve these things yet, I also noticed that we have a hard time getting

changes done in our company, even though we are still tiny. Maybe it might seem a bit silly for

some of you, but if we want to change the things we talked about, we need a proper tool to



successfully implement any change. I've been thinking about how we can make this work for a

while now, and I think to be able to implement all this soon, it is inevitable to work something

like this out. Not only for this problem but all future obstacles that may arise, affecting the

whole organization. Why? Because I think such changes need to be communicated well to the

rest of the staff and maybe explained and justified. Let's look for solutions in the next

weeks". All management members nodded and agreed that many intended changes weren't

appropriately implemented in recent weeks. Mr. Walter continued: "Okay, thank you for the

honest answers. I will raise all this at the shareholder meeting and update you afterward. Let's

start to think about how we want to tackle the issues raised so that we are prepared at the time

we can and want to implement them. And now, let's put the work aside and enjoy the rest of the

evening for a while." Alexander Walter raised the glass and proposed a toast to the team.

TEACHING NOTE (PART B)

04 CASE SYNOPSIS This case study enables understanding of the challenges young companies face when competing

against big companies in the “war of talent” and understand the importance of a total reward

strategy. As increased sources and studies have proven that a comprehensive compensation

package improves talent attraction, retention, and motivation, this case study enables

identifying the key insights that will allow similar companies to benefit from such a strategy.

Since the case study also addresses the importance of money, the reader will understand how a

pay structure is determined and how this fundamental organizational change can ultimately be

achieved.

OBJECTIVES This case study will help clarify what young companies have to struggle with regarding talent

attraction, retention, and motivation. It will also provide strategic insights into total reward

stray, fix pay determination and organizational change, and the tools to master change. If

possible, the students should work on the following objective topics: 1. Why do Companies and



Startups fail to attract and retain talent; How can they change that and become relevant for

outstanding talents; What can KENDA Bikes do to become relevant for the right talents. 2.What

is the total rewards strategy; What are the components of a comprehensive rewards strategy;

What is the goal of a total reward strategy; Why should every company follow the total reward

strategy. Understand the importance of pay. 3.What is a Job Analysis; What is a Job Design;

List and define the five steps to determine a pay structure. 4.What is organizational change;

Define Lewin’s Change Model and Kotter’s Eight Steps.

05 ANALYSIS

1. What are challenges for start-ups when attracting and retaining talent?

In 1997 Steven Hankin came up with the term "war of talent", referring to the increasingly

fierce competition to attract and retain employees. During that time, the baby boomers departed

from the work-life, and generation X and Y were too few to make up the gap (Keller and

Meaneym, 2017). The offer becomes more extensive with the entrance of the "Gen Z" into the

working life. However, the fight for the talents remains, since unique skill sets are looked for,

and in particular for start-ups, it is vital to find "high performers". The right employee can make

the difference between death and survival for start-ups, so it is all the more critical that they

make an effort to attract and retain qualified talent. Start-ups inevitably need to evaluate their

finances carefully and their attached capabilities to attract and retain talent. At the beginning of

a business, they usually try to keep cash compensation as low as possible. One of the reasons

for this is that start-ups are often faced with the significant obstacle of securing the necessary

capital and ongoing finances (Grünhagen, 2008). In the long-gone business world, tangible

assets accounted for 80% of average company revenues. In recent decades, a gradual,

imperceptible but steady shift has taken place in this regard. Today, human capital represents

the same corresponding value as tangible assets at that time. In retrospect, it can be said that

this requires the management of enormous social transformations, which is why attracting talent



is increasingly becoming a critical aspect and a strategic element for all growth-enhancing

companies (Sporre, 2013). Newly founded companies generally face additional challenges such

as finding qualified employees for the job, the ability to work long hours, and the ability to

maintain a balanced workload. However, even these surveys indicated that the biggest challenge

is attracting and retaining talented employees (Devaney and Stein, 2011).

Talent Attraction

Large and well-known corporations' reputation is still a huge asset and tough to battle for young

upcoming start-ups. Clayton Glen (2007) claimed that talented human capital searches for

companies offering the best opportunities to develop themselves. Even though it is proven that

these large reputable companies have a high turnover rate, these corporations attract talent at

every level of employment as they can provide, among others, an ideal career path and

competitive financial reward. Jarie Bolander (2010) also advises companies to create a

competitive image, which could be achieved by various actions such as offering challenging

work, competitive salaries and benefits, talent management and a talented workforce, and a

flexible work environment. Unfortunately, many companies, whether large or small, fail to

present the jobs they offer attractively. Others, especially start-ups and small-sized companies,

face the strain of keeping up with competitive salaries and benefits offered in the industry,

enabling employees to perform the work expected from them.

Moreover, it is no longer about moving to a more attractive job. It is rather about moving to a

job where other factors come into play, such as family security, child-care, work-life balance,

which provide a certain quality of life for employees (Sporre, 2013). Most of these factors are

very capital-intensive and require enough resources from companies. Resources that many

small businesses and early-stage start-ups cannot or can hardly obtain by compromising

elsewhere. Talented employees also tend to want to work with people who are like them and

have similar talent, so companies must provide a consistent service level (Bolander, 2010).



Nevertheless, start-ups could also benefit from the things mentioned above. According to The

Wall Street Journal, young businesses need to realize their advantages over large reputable

companies. They usually have less bureaucracy, more job diversity, more opportunities to

develop and close almost familiar relationships between employers and employees. They also

offer more opportunities to grow, as well as increased flexibility (WSJ, 2008). Due to the few

prevailing obstacles in a start-up, it is easier to establish things and pay attention to how they

are handled. Rob Goffee and Gareth Jones (2013) have identified six crucial agenda points for

creating the ideal work environment. In order to create the most productive, most rewarding

workplace imaginable, a company should fulfill as many of the following points as possible:

1.Let people be themselves / 2.Unleash the flow of information / 3.Magnify people's strengths

/ 4.Stand for more than shareholder value / 5.Show how the daily work makes sense / 6. Have

rules people believe in. This list contains no surprises, but implementing the elements is no easy

task and asks for high determination. "The challenge is to match—and then to exceed—what

they have managed to accomplish” (Goffee and Jones, 2013). Devaney & Stein (2011) suggest

that newly founded companies pay attention to the following points: The globe is your

battlefield, Focus on recent graduates, First come first serve, Keep the level high, Late founder

approach, and do not be too stingy with the base salary (see Appendix C.1). In short, start-ups

need to be proactive in their search for the most suitable candidates and need to be.

Talent Retention

Hiring talent is complicated and very expensive, but yet one of the most crucial aspects of every

company. However, what about retaining the recruited employees? When a company

successfully recruits the most suitable employee for the advertised vacancy, it is even more

substantial to retain the employee. According to William and Scott (2012), 40% of workers in

the United States are planning to look for a new job within the first six months, and 69% say they

are already passively looking. When talking about a high investment while recruiting human



capital, losing this human capital and the related costs of employee turnover like immediate

separation costs, recruitment costs for a suitable substitute, and the productivity costs which may

and will occur due to various factors such as the hours of productivity the company loses. At the

same time, the position goes unfilled, as well as the time other employees spend trying to pick up

the slack (Bretado, 2016). All this is no secret since Hogan (1992) and Wasmuth and Davis

(1993) showed already in the early 90s that employee turnover is an essential factor since it can

be costly for an organization and harms profitability. Long-term employee retention requires

many good reasons. Organizations must offer their employees a perspective and a long-term

commitment. Organizations are better equipped to retain their employees through open

communication between management and workforce, through the equal treatment of all talents,

common sense, and the ability to look beyond the company's needs and be open to confrontation

and the workforce's wishes (Bolander, 2010).

For the Harvard Business Review article "Five Ways to Retain Employees Forever, " D.K.

William and M.M. Scott came up with the "5 R's" that are essential when retaining talent. The

five R’s are Responsibility / Respect / Revenue sharing / Reward / Relaxation time. Companies

of all sizes have obligations to their employees. They represent a large part of the daily lives of

their employees. Therefore, if they want to maintain a high-performance level, they must offer

monetary and non-monetary rewards to employees. This is conducive to build a positive culture

in which the employee is trusted, respected, and valued, and they must be given appropriate

responsibilities that allow them to acquire new skills and promote career advancement in order

to create a strong, stable relationship with the employee (Williams and Scott, 2012). Taplin,

Winterton & Winterton (2003) conducted a study that confirmed that rewards positively

correlate with employee retention. Williams and Scott (2012) went a step further and claimed

that the employees' wages should be attached to the company's performance, thus strengthening

retention. Elena Bajic (2013) defines six steps to retain employees who are more focused on



intercommunication and appreciation: 1.Communication / 2. Coaching / 3.Setting clear key

performance indicators / 4. leveraging performance reviews to gain insights into employees'

goals and aspirations / 5.Treating growth opportunities / 6. Underscoring positive feedback with

something tangible.

The quintessence of the model is that the interpersonal aspects in an organization matter in

addition to all rewards. Interacting with employees through verbal and nonverbal

communication, giving them the authority needed to perform their jobs properly, and

understanding how they are evaluated and rewarded is key when retaining valuable human

capital. Lastly, it is crucial to acknowledge the career goals and possibilities for every

employee's progression, so companies should promote from within whenever this is possible.

(Bajic, 2013). According to Jarie Bolander (2010), the things listed above are the most severe

reasons why companies fail to keep their talents within the organization. For example, most

cannot communicate openly or make their employees feel like they are part of the team. This is

a big problem for talented people whose good ideas need to be recognized and whose

differences should be respected, evaluated, and probably used for the whole organization's

good. Another challenge is when managers do not treat employees fairly. Knowing that

employees are people with concerns other than work and not allowing them to deal with them

is an additional concern, so emotional intelligence is becoming increasingly important.

Implications for “KENDA Bikes”

What are the key takeaways for KENDA? As a start-up that is still at an early stage, KENDA

has one significant advantage: almost no bureaucracy and internal processes that allow the

company to start fresh. KENDA should elaborate on its young, healthy, and fun brand when

attracting new employees. It is essential that they also refreshingly present their job listings to

stand out from the crowd. Furthermore, they should radiate that working at KENDA is fun.

Every day is different, the opportunity for further development is given, and the interpersonal



relationship at the company is considered very important. Since many companies communicate

this, it is also essential to speak the desired/suitable applicant's language, just as it is vital in

marketing to speak the customer's language. Young companies have to find new ways to attract

talent and understand what drives people to give up higher salaries and more benefits for a

business idea and a unique working environment. This is also strongly reflected in the six steps

of Goffee and Jones. In these, it is also imperative that the employee perceives the

communicated benefits as real. Going back to the suggestions above of Devaney and Stein, one

can say that KENDA already does most of them besides the suggestions “late founder

approach”, which is not possible due to the shareholder's wishes not to offer equity in the

company and "the globe is your battlefield". KENDA should consider transferring their

processes and internal drive system from German to English to be prepared if a suitable

applicant cannot speak German on a business level. When retaining employees, communication

is a crucial factor.

KENDA needs to provide new employees with information about the company, its

organizational chart, communication guidelines, departmental overview, human resources

policies, and promotional videos to become familiar with the company. Moreover, it would be

advisable for KENDA to elaborate a hybrid out of Bajic's six steps and the 5R's of D.K. William

and M.M. Scott since they are trying to imply the same. Both put the employee first, and

KENDA should try to live this as much as possible and treat all organization members with

respect. Even though no organization can fulfill every hope and desire of its employees, start-

ups might implement the mentioned aspects faster than large corporations. In other words,

KENDA should focus on the above-mentioned quick wins, which are easier to achieve for start-

ups than for large corporates. After that, they should start to tackle other possibilities, such as

wages attached to the company's performance.



2. What is the „Total Reward Strategy“ and why is it crucial for companies such as „KENDA Bikes“?

In short, the total reward strategy, when properly implemented, should enable an organization

to develop policies and practices that attract, retain, and motivate highly qualified employees

(Armstrong, 2006). Money is and remains a significant factor and has always been the linchpin

of the human-made world. In this context, organizations are required to develop sustainable and

comprehensive compensation strategies that are attractive to potential employees (Nwokocha

and Iheriohanma, 2012). However, money is not the most important thing for everyone, as it

has a lot to do with an employee's character. Many studies say that it depends on the respective

employee, which character they have, which education level they have, and in which situation

they are asked about the importance of money.

Pay is more important in job choice when pay varies widely across employers than when pay

is relatively uniform. There is a declining marginal utility to additional increments of pay. This

means that dollar for dollar, being "under market" has a deterrent or demotivational effect than

the positive effect of paying above market. People often reject low-paying job offers based on

pay alone, without considering other factors (Rynes, Schwab, & Heneman, 1993). The salience

or importance of pay is likely to rise after changes are made to pay systems. Pay is probably

more important in job choice than in decisions to quit, in part because the pay is one of the few

characteristics people can know with certainty before taking a job.

In contrast, once a person has been on the job for a while, other factors come into play (Rynes,

Schwab, & Heneman, 1993; Towers, 2003). Pay will do little to motivate performance in

systems where people receive similar pay increases regardless of the individual or firm

performance. However, dramatic performance changes often occur when payment is made

more contingent on performance (Rynes, Gerhart and Mine 2004). Nevertheless, an employer

has to offer more than just fair pay, and this is where the aforementioned total reward strategy

comes into play. World at Work, the former American Compensation Association (2007) draw



up the total rewards strategy decades ago and improves it continuously. It refers to everything

that employees value in the employment relationship. World at Work (2007) defines total

rewards as the overall return provided to employees in exchange for their time, talents, efforts,

and results. It involves integrating five key elements that effectively attract, motivate, and retain

the talent needed to achieve a company’s goals. The five essential rewards elements are

Compensation, Benefits, Work-Life, "Performance and Recognition", and "Development and

Career Opportunities" (WorldatWork, 2007; Appendix C.2).

Why do companies need the total reward strategy?

Brets, Ash & Dreher (1989) have recognized earlier that an organization's reward structure is

one of the foundations and determines the differentiation of one organization from another.

Brown and West (2005) agree that the reward strategy is a mindset that can be applied to all

types of reward problems to achieve valuable results. Reward strategies are designed differently

because each organization is different from the other and can lead to a strong competitive

advantage, according to Hiles (2009). An effective overall reward strategy should be aligned

with the business strategy and well communicated to all organization employees (Lyons and

Ben-Ora, 2002). Research has shown that a company's performance depends in part on the

extent to which compensation practices underpin and support companies' strategies (Gomez-

Mejia, 1992; Miles & Snow, 1984; Youndt, Snell, Dean, & Lepak, 1996). Silverman & Reilley

(2003) discovered in their study that compensation systems are more likely to be successful,

the better the overall compensation and corporate strategy fit together. Well-designed reward

programs offer employees a long-term perspective on the company, which helps retain

employees and give them a common goal to strive for (Welbourne and Andrews, 1996). Finally,

these programs, which are designed in the early stages of a business start-up, positively affect

the company's short-term success and long-term survival (Collins and Porras, 2004). The

quality of human capital is of crucial importance, especially in entrepreneurial firms and start-



ups, as it determines the business's success (Ireland, Hitt, & Sirmon, 2003; Shrader & Siegel,

2007; Snell & Dean, 1992). Designing an effective communication system helps employees

understand the reward structure. It also helps them to understand their contribution to the

company and the rewarding process that accompanies it. Even if the organization has created a

perfect reward structure, it can fail if it is not communicated well to employees (Lyons and

Ben-Ora, 2002). Organizations today typically use various digital media (such as, among

others, interactive PDF files and quick links) to avoid poor communication (Rowley, 2009).


In summary, each employee has their own needs that companies should understand if they want

to achieve their short and long-term goals. Money is not the only motivating factor for

employees to be motivated to work harder and achieve goals. As already mentioned in the

previous question, KENDA is financially limited and bound to the shareholders' wishes to not

pay a higher base salary, which means that compensation will stay unaltered. Resulting from

this, KENDA needs to focus on work-life balance, "performance and recognition", and

"development and career opportunities". In order to secure the work-life balance, KENDA

could implement working time based on trust. By implementing this as an initial step, the

employees can organize their day and focus on private life, obligatory appointments, or their

family. Even though the so-called extra mile is vital to start-ups, KENDA should consider that

each employee's declared working hours are met. For performance and recognition, KENDA

could implement "1on1s", which are often used in start-ups and are super functional and easy

to organize for small companies. The supervisor takes every two or four weeks some time to

talk personally with his subordinates. Topics such as problems, ideas, own development, and

goals/KPIs are discussed and evaluated if necessary. In such a small company, it can also help

to establish a culture of praise and encouragement among the staff. Once again, communication

and an intact group structure within the company are essential. "1on1s" are also useful for the



aspect of development as it should be an integral part of the "1on1s". To cover training

opportunities, KENDA should consider putting up a fixed budget for every permanent

employee. Due to the limited financial capabilities, it should always be double-checked if the

training/education is useful for the employee and the company. In combination with an effective

communication system (interactive PDF files, quick links, Slack, or G-suit) and a transparent

overall strategy, a considerable part of making your employees feel better is already achieved.

What is meant by that? Let the employee know where the company is heading and communicate

these strategies, values, and policies straight forward. When the financial capital and time have

come, KENDA should develop benefits and variable compensations. Nevertheless, variable

compensations for the team are imaginable immediately since bike turnover is measurable, and

since the company is still small, almost everyone is contributing to achieving revenue goals.

3. List and define steps with which “KENDA Bikes” can design a sufficient pay structure?

Even though we already worked out that pay alone is not enough to attract, retain, and motivate

employees, it is the starting point for everything else and must be adequately determined.

Compensation is a critical area of human resource management that can significantly influence

employee behavior. Sufficient compensation must be perceived by employees as fair,

competitive in the marketplace, accurate, motivating, and easy to understand. Especially when

having in mind that KENDA wants to grow in the future, one has to define a pay structure in a

detailed manner.

Step 1: Job Analysis - Job analysis is the process of examining jobs in an organization. This

process is a job description that includes the job title, a summary of job duties, a list of essential

tasks and responsibilities, and a description of the work context. Also included are the

knowledge, skills, and abilities required to perform the job (Ivancevich, Konopaske, and

Robert, 2012). "What gets done, How it gets done, and the skills required to get it done." One



essential part of a job analysis is a job description (Appendix C.3). Step 2: Job Evaluation - A

job evaluation is the process of rank-ordering jobs based on job content to demonstrate the

relative worth and level of responsibility of all jobs to one another. The result of job evaluation

is the development of an internal structure or hierarchical ranking of jobs. Step 3:

Developing/Identifying a pay policy - What is the organization's goal or belief about

compensation? This is also attached to the approach if a company wants to lead, match, or lag

behind the market in terms of pay. Leading the market means an organization pays above the

market rate, aiming to gain personnel advantage or attract talent away from the competition.

Match the market means that an organization pays around a market rate similar to competitors.

Lagging behind the market means an organization pays below the market rate, which is never

advisable. That is not a conscious pay strategy. Usually, a misjudgment that needs to be

corrected could result from a limited compensation budget, or the employer branding is so

attractive that they can lag behind the market without a negative impact on recruitment. Step 4:

Pay Survey Analysis - Pay survey analysis is the process of analyzing compensation data

collected from other employers as part of a survey of the relevant labor market. Collecting

external salary data is vital to keeping the company's compensation competitive within its

industry. Step 5: Pay Structure Creation - Creating the pay structure is the final step, where the

internal structure (step 2) is merged with the external market pay rates (step 4) in a simple

regression to develop a market pay line. Depending on whether the organization wants to be

ahead of, behind, or in line with the market, the market salary line can be adjusted up or down.

To complete the salary structure, pay grades and pay ranges are developed (Milkovich and

Newman, 2008).


Firstly, KENDA has to analyze the jobs already existing in the company and the jobs they want

to create soon. For that, Kenda should do a job description for every vacancy. A job description



is a list of tasks, duties, and responsibilities that a job entails – or in other words, a job

specification/job profile: A list of KSAOs5 that an individual must have to perform a job:

Knowledge - factual or procedural information necessary to perform a task, Skill - individual's

level of proficiency at performing a task, Ability - refers to a general enduring capability that

an individual possesses, and Other characteristics: might include personality traits, resilience,

and motivation (Appendix C.4). Another essential part of a job analysis is job design. It is the

process of defining how work will be performed and the tasks that will be required in a given

job. To effectively design jobs, one must thoroughly understand the job as it exists and its place

in the larger unit's work-flow process (Ivancevich, Konopaske & Robert, 2012). Some

approaches are mechanistic, motivational, biological, and perceptual (Appendix C.5). In

KENDA's case, all Jobs follow the motivational approach. Secondly, KENDA needs to evaluate

all jobs. There are three methods of job evaluation: the point method ranking and classification.

Job evaluation helps ensure that compensation is internally aligned and perceived as fair by

employees. As it is the most commonly used method, KENDA should follow the point method

(Appendix C.6). Thirdly, KENDA has to set a pay policy or strategy which will likely influence

employee attraction and retention. Pay policies can vary across job families and job levels if

the top management feels that different strategies can be useful in different organization areas.

As we already know, the lagging behind policy will not work for much longer since KENDA

is even struggling to attract new interns and retain current employees. Therefore KENDA needs

to consider adjusting it, at least in the management team. Fourthly, KENDA has to analyze the

competition to know where they stand and improve employee attraction and retention. Lastly,

KENDA can complete the pay structure by developing pay grades and pay ranges. A

conventional graded pay structure consists of a sequence of job grades into which equivalent

value jobs are fitted. Each grade has a pay range or band, offering the employee scope for

5 KSAO stands for Knowledge, Skills, Abilities, and Other characteristics. This acronym is commonly used by recruiting professionals to describe job requirements.



progression within his/her grade. Graded pay structure places more significance on such factors

as tenure and progression through the organizational hierarchy. Each job family can have its

pay grades and pay ranges established independently from other job families, or all job families

follow the same pay grades (Appendix C.7 & C.8).

4. Define two different change management tools shortly and describe how “KENDA Bikes” can use one of them in order to implement a sufficient reward strategy.

Leading organizational change is one of the most important and challenging responsibilities for

executives. The mentioned organizational change is analyzed from a process approach (Langley

et al., 2013). It is important not to confuse organizational change with change in organizations.

Changes in organizations occur to the extent that individuals try to accommodate new

experiences, e.g., change occurs continuously in organizations. Change initiatives, either

locally or centrally undertaken, remain "improvisations" or plans without becoming

institutionalized. Organizational change refers to sets of institutionalized categories (Tsoukas

and Chia, 2002). Change can be episodic in its roots or continuous. On the one side, Episodic

change is used to group organizational changes that tend to be infrequent, discontinuous, and

intentional. This kind of change occurs during periods of divergence when organizations are

moving away from their equilibrium conditions. Divergence is the result of growing

misalignment between a deep inertial structure and perceived environmental demands. On the

other hand, continuous change refers to organizational changes that tend to be ongoing,

evolving, and cumulative. The distinctive quality of continuous change is the idea that small

continuous adjustments, created simultaneously across units, can cumulate and create

substantial change (Weick and Quinn, 1999).

Two prominent tools are Lewin's force field model and Kotter's eight steps. Lewin's force-field

model is a model to analyze episodic changes. 1. Unfreezing: This step refers to minimizing the

forces that maintain the organization's behavior at the current level. It can be done by



introducing a system of information that would show certain discrepancies between the

employees' behavior and actual behavior. 2. Change proper: It is about modifying the

organization's behavior, about reaching another level of this plan. This step refers to developing

new behaviors, values, and attitudes through organizational structures and processes. 3.

Refreezing: This step refers to stabilizing the new stage the organization is in, to reinforcing

the newly introduced elements; it can be accomplished via organizational culture, norms,

policies, and structures Kurt Lewin (Pathak, 2010).

Kotter (1995) called it the anatomy of episodic organizational change. Rather than winning over

individual employees, it focuses on getting buy-in on a macro scale. The first step establishes a

sense of urgency among both managers and employees. Secondly, form a powerful guiding

coalition by winning trend-setting people for your idea and bringing them together under the

flag of change. After that, one must continue developing a strong vision and concrete strategies

to achieve the goal. Fourthly do not be afraid to communicate the vision to managers and

employees again and again. In the fifth step, it is all about empowering others to act on the

vision. The following step is about planning for and creating short-term wins. In the penultimate

step, one consolidates improvements and produces still more change by analyzing what went

well and what could have gone better in the future. Lastly, anchor the achieved goals firmly in

the corporate culture (Kotter, 1995). Since Kotter's 8-phase model provides concrete

instructions on successful change management, it can be of excellent service in practice, and it

demonstrates, like hardly any other change management model, the importance of good

communication for sustainable change.


Applying Kotter's eight steps on the previously discussed reward strategy, KENDA has already

reached a particular urgency due to the lack of applicants and various rejections due to a bad

salary. Nevertheless, the management team must root the sense of urgency even deeper in the



company by developing scenarios that could occur if no change occurs. They need to discuss

further present strong arguments to the rest of the organization. According to Kotter, it is

essential to have the right mix of people from different departments and skills. As KENDA is

still small, the management team members already represent such a constellation and need to

take the lead. When creating a vision, it is crucial to identify a common goal for the whole

company. It does not matter if it is far out of reach as long everyone can relate and when it is

realistic. An overarching goal for the company will help implement the change. KENDA could

relate to its drive to grow organic and considerably fast by which all employees have the same

driver.

Furthermore, another critical step for KENDA is to communicate the vision properly. Prepare

all communication methods well and give a powerful speech for the rest of the workforce to

boost trust and boost motivation. In the fifth step, KENDA observes the infrastructure of the

company. KENDA has to closely examine the status quo and eliminate unfavorable

organizational structures, workflows, and routines. In the specific example of reward strategy,

it will be crucial to decide which parts of the current compensation package can stay and which

have to be cut. When it comes to set short-term wins, it is about creating realistic goals. Even

small achievements at KENDA have to be rewarded, especially the employees who achieved

them—continuing with developing new ideas and goals and bringing new employees into the

management team to make the change even further and double-check on the wins that KENDA

already achieved. Furthermore, the new reward strategy needs to be institutionalized by

showing people how the change has benefited the organization and ensures that the next

generation of employees personifies the new approach (Kotter, 1995).



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COMPENSATION POLICY IN STARTUPS

“KENDA BIKES” FIRST STRIKES TOWARDS A COMPETITIVE COMPENSATION

STRATEGY

APPENDIXES

PHILIP NODORP

MASTER STUDENT 40678

A Project carried out on the International Master’s in Management Program,

under the supervision of:

Alexandre Dias da Cunha


1

Table of Contents

Appendix A | INFORMATION ABOUT “KENDA BIKES” ............................................... 2

Appendix A.1 | KENDA’s Timeline .................................................................................. 2

Appendix B | INFORMATION ABOUT THE E-BIKES MARKET.................................... 3

Appendix B.1 | Number of bikes and e-bikes sold in Germany from 2013 to 2019.......... 3

Appendix B.2: Number of e-bikes sold in Europe from 2009 to 2019 .............................. 3

Appendix C | ADDITIONAL MATERIAL FOR THE ANALYSIS PART ......................... 4

Appendix C.1 | Devaney & Stein’s guidelines for startups when attracting talent. ........... 4

Appendix C.2 | Key Elements of the Total Reward Strategy. ........................................... 5

Appendix C.3 | Example: Job Description ......................................................................... 6

Appendix C.4 | Job Characteristics .................................................................................... 7

Appendix C.5 | Job Design ................................................................................................ 8

Appendix C.6 | Example: Job Evaluation – Point Method ................................................ 9

Appendix C.7 | Example: Pay grades and Pay ranges – established independently ........ 10

Appendix C.8 | Example: Pay Grade - Job families ........................................................ 10


2

Appendix A | INFORMATION ABOUT “KENDA BIKES”

Appendix A.1 | KENDA’s Timeline

Source: adapted by Author, 2020 from KENDA Bikes, 2020


3

Appendix B | INFORMATION ABOUT THE E-BIKES MARKET

Appendix B.1 | Number of bikes and e-bikes sold in Germany from 2013 to 2019

Source: adapted by Author, 2020 from I.Wagner, 2020

Appendix B.2: Number of e-bikes sold in Europe from 2009 to 2019

Source: adapted by Author, 2020 from Statista, 2020; BWMI, 2020


4

Appendix C | ADDITIONAL MATERIAL FOR THE ANALYSIS PART

Appendix C.1 | Devaney & Stein’s guidelines for startups when attracting talent. Suggested Action Description

The globe is your battlefield Startups need to look for talent without being limited to

a specific geographical region and/or educational

background.

Focus on recent graduates Start-up companies have a better opportunity with recent

graduates because they tend to care more about solving

problems than earning big money.

First come first serve Start-ups have to make use of their ability to evaluate a

potential employee and offer a job more quickly than

large companies.

Keep the level high Encourage new talent to participate in teamwork by

making the level of work challenging.

Late founder approach Start-ups need to offer a considerable equity to attract

talented people especially if they are liable to look at

other job offers.

Don’t be too stingy with the base salary along with equity start-ups have to offer an acceptable

salary since also graduates are not working below their

market value/ below industry average when choosing to

work in a young company.

Source: adapted by Author, 2020 from Devaney & Stein, 2011


5

Appendix C.2 | Key Elements of the Total Reward Strategy. Key Elements Description

Compensation Includes fixed as well as variable compensation, which is linked to the level of

performance and is intended to match the services rendered as far as possible.

Benefits Benefits such as health, income protection, savings and retirement programs, which

are designed to provide security for employees and their families in addition to the

compensation.

Work-Life Organizational practices, policies and programs, and a philosophy that actively

supports efforts to help employees be successful both at work and at home and to be

the work-life balance.

Performance

and

Recognition

Performance: Measures to trigger individuals, teams and the entire company to

achieve corporate goals and the success of the company. For example: setting

expectations, demonstrating skills, assessment, feedback and continuous

improvement.

Recognition: Recognition of employee actions, efforts, behaviour or performance -

Whether formal or informal, recognition programs recognize employees'

contributions immediately after the fact, usually without pre-defined goals or

performance levels that the employee is expected to achieve.

Development

and Career

Opportunities

Development: Development through diverse learning experiences drives employees

to better performance and leaders to advance their organization's people strategies.

Career opportunities: Such as an individual career plan for employees, which

includes advancement to a more responsible position in an organization, talented

employees are placed in a position that allows them to deliver the greatest value to

their organization, and internal hiring. Even if all these services are the standard for

the ordinary employee, the total reward strategy is more about the art of combining

all these aspects in a complete package to achieve optimal motivation.

Source adapted by Author, 2020 from WorldatWork, 2007


6

Appendix C.3 | Example: Job Description

Internship - Supply Chain Management (m/w/d) JOB SUMMARY & RESPONSIBILITIES Are you not only interested in our KENDA bikes but also its stunning recipe? You want to

know where our fresh ingredients come from, how our KENDA is made, and how we get it to

our KENDA lovers? Then we need your support! The following tasks await you at the earliest

possible date:

x You will take over your own projects with high relevance for production as well as for

logistics.

x You will be involved in the design of the future production control and material supply

system

x You participate in improvement activities to increase efficiency, transparency, and

communication

x You will take co-responsibility in the coordination and execution of daily operational

logistics activities through appropriate prioritization and management of tasks

according to internal needs

x You will be a significant part of prototyping activities

x You will assist with projects through research, analysis, and active stakeholder

management

If all of this sounds exciting to you and you want to help keep us busy delivering KENDA in

2021, send us your resume and a short cover letter. Feel free to tell us why you would fit into

our team and why we definitely shouldn't be without you.

JOB SKILLS & QUALIFICATIONS x You have already gained experience in logistics, production planning, or supply chain

management

x You have good analytical skills and excellent Google Sheets knowledge

x You have no trouble getting to grips with technical issues independently

x You recognize optimization potential and address it independently

x You are ready for the startup world and the associated framework conditions

x You like to go the extra mile and want to advance us as a team

x You have the desire to develop yourself and take responsibility for your own operations

continuously

x You find it exciting to question and improve current mobility concepts Source: adapted by the Author, 2020 from KENDA Bikes, 2020


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Appendix C.4 | Job Characteristics

Source: Hackman & Oldham, 1976


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Appendix C.5 | Job Design Approach Description The mechanistic approach

The mechanistic approach focuses on identifying the simplest way to

structure work that maximizes efficiency by increasing simplicity,

specialization and repetition. The work is not meaning full and all

individuals are easily replaceable which means there is a reduced need

for individual workers. Potential drawback are boredom and fatigue

which could be solved by job and task rotation such as a periodic shifting

of employees between tasks.

The motivational approach

The motivational approach focuses on job characteristics that affect

meaning and motivation through increasing meaningfulness of jobs –

Job Characteristics Model (see APPENDIX C.4). The meaningfulness of

the job and thus the performance of the employee can be increased by

job enlargement, job enrichment, self-managing teams, relational and

cognitive crafting, and prosocial impact

The biological approach The biological approach addresses physical demands through

ergonomics and work conditions. The goal should be to reduce physical

strain on the worker by structuring the physical work environment

around how the body works. Everything has direct effects on physical

health and indirect effects on the employees psychological state and

organizational climate of health and safety.

The perpetual approach The perpetual approach designs the job while having the employees

menta capacity and limitations on mind. This approach improves

reliability , safety and user reactions by designing jobs to reduce their

information-processing requirements.

Source: adapted by the Author, 2020 from Campion, Cheraskin, &Stevens, 1994; Grant, et al.,2007


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Appendix C.6 | Example: Job Evaluation – Point Method

Source: adapted by Author, 2020 from NOVA SBE Course Material - Prof. Samantha Sim, 2019


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Appendix C.7 | Example: Pay grades and Pay ranges – established independently


Appendix C.8 | Example: Pay Grade - Job families
